AS Level Economics chapter 1: Basic economic ideas and resource allocation MCQs with answers

By Team Megalecture · Updated 4 Nov 2026

69 exam-style questions on Basic economic ideas and resource allocation, each with the answer and a short explanation. Ten of them are below to try. The chapter test draws ten fresh questions each time and is marked the moment you finish, with your score by topic.

69 questions · 6 topics · 10 per test

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What chapter 1 covers

Ten Basic economic ideas and resource allocation questions with answers

Try each one, then open the answer. These ten stay the same; the test draws new ones every time.

1. What does a production possibility curve (PPC) show?

  1. A
    the combinations of two goods that consumers would most like to buy with their incomes
  2. B
    the actual output of two goods produced in a particular year
  3. C
    the maximum output of two goods possible with all resources fully employed
  4. D
    the combinations of two goods that earn firms the most profit
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Answer: C. A PPC shows the greatest possible combinations of two goods when all resources are fully and efficiently employed, given the state of technology. Actual output may lie inside it.

2. In economics, the short run is a period in which

  1. A
    all factors of production can be varied
  2. B
    the state of technology is able to change
  3. C
    less than one calendar year has passed
  4. D
    at least one factor of production is fixed
Show answer

Answer: D. The short run is defined by fixed factors, not by calendar time. In the long run all factors can be varied; in the very long run technology can change as well.

3. An economist predicts: "A rise in the price of mangoes will reduce the quantity of mangoes demanded, ceteris paribus." Why is the ceteris paribus condition needed?

  1. A
    it shows that the demand curve for mangoes is a straight line
  2. B
    it means that the price rise must have been caused by a fall in supply
  3. C
    incomes or other influences might change too and hide the effect
  4. D
    it makes sure that the effect of the price rise is permanent
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Answer: C. If incomes or the prices of other fruit changed at the same time, the quantity bought might even rise despite the higher price. Assuming other things are equal isolates the effect of the price change alone.

4. Which is an advantage of the division of labour?

  1. A
    workers learn to do a much wider range of different jobs in the firm
  2. B
    production is less disrupted if one group of workers goes on strike
  3. C
    workers become more skilled at their task, so output per worker rises
  4. D
    workers find their jobs more varied and interesting
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Answer: C. Specialising in one task builds skill and saves time moving between jobs, raising productivity. In practice jobs become narrower and more repetitive, and production becomes more interdependent.

5. Which would cause a country's PPC to shift inwards?

  1. A
    a rise in cyclical unemployment
  2. B
    large-scale emigration of skilled workers
  3. C
    a fall in consumer demand for manufactured goods
  4. D
    a government decision to spend more on defence
Show answer

Answer: B. Losing skilled workers reduces the quantity and quality of the labour force, so the maximum possible output falls. A rise in unemployment moves the economy to a point inside an unchanged PPC.

6. Which is classified as land as a factor of production?

  1. A
    a factory built on a plot of land
  2. B
    a farmer who clears a field for planting crops
  3. C
    a dam built to supply water to farms
  4. D
    the fish stocks in a country's coastal waters
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Answer: D. Land covers all natural resources, including those in the sea. A factory and a dam are man-made, so they are capital, and the farmer supplies labour.

7. A drug company can use its only research laboratory for one project this year. The expected profits are: a new vaccine $4.0 million; a new painkiller $3.0 million; a skin cream $2.5 million. It chooses the vaccine. What is the opportunity cost of this choice?

  1. A
    the skin cream, with its expected profit of $2.5 million
  2. B
    the painkiller and skin cream, worth $5.5 million together
  3. C
    nothing, since the vaccine gives the highest expected profit
  4. D
    the painkiller, with its expected profit of $3.0 million
Show answer

Answer: D. Only the next best alternative counts, which is the painkiller. Adding both rejected projects ($5.5 million) is a common error, and choosing the most profitable project does not make its opportunity cost zero.

8. What is a free good in economics?

  1. A
    a good with no opportunity cost because it is not scarce
  2. B
    a good that the government provides at zero price
  3. C
    a good that a firm gives away to promote its brand
  4. D
    a good people use without paying, such as street lighting
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Answer: A. A free good, such as air, is not scarce: using more of it means giving up nothing. Goods given away by the state or by firms still use scarce resources, so they are economic goods with an opportunity cost.

9. Which statement about the need to make economic choices is correct?

  1. A
    choices are needed in market economies but not in planned economies
  2. B
    choices are needed by consumers but not by firms or governments
  3. C
    choices are needed whenever a scarce resource has alternative uses
  4. D
    choices are needed only when some resources are unemployed
Show answer

Answer: C. Scarcity affects individuals, firms and governments in every economic system, so all must choose between alternative uses of resources. In a planned economy the state makes the choices; it does not escape them.

10. An economist says: "A 10% rise in the price of petrol reduces the quantity bought by less than 10%, so the government should tax petrol to raise revenue." How should the two parts of this statement be classified?

  1. A
    the first part is positive and the second part is normative
  2. B
    the first part is normative and the second part is positive
  3. C
    both parts are positive because they are based on economic theory
  4. D
    both parts are normative because an economist is giving advice
Show answer

Answer: A. The claim about how quantity responds to price can be tested with data, so it is positive. "Should" introduces a value judgement about what the government ought to do, so the conclusion is normative.

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Basic economic ideas and resource allocation: questions students ask

How many Basic economic ideas and resource allocation MCQs are there?

69, each with the answer and a short explanation, across 6 topics: Scarcity, choice and opportunity cost, Economic methodology, Factors of production, Resource allocation in different economic systems, Production possibility curves, Classification of goods and services. Every chapter test draws ten of them, so you can take it many times.

Is the AS Level Economics chapter 1 test free?

Yes. The test, the answers and the explanations are free and need no sign-up. Sign in only if you want your scores kept across devices.

How is the chapter test marked?

The moment you press Finish: your score, the right answer and an explanation for every question, and the ones you got wrong saved in My mistakes to retry.

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